What Is a Cash Proof and How Do You Prepare One?

Financial reconciliation is a cornerstone of sound financial management for any entity. It involves systematically comparing internal financial records with external statements to ensure accuracy and consistency. Within this framework, a “cash proof” is a fundamental tool. It offers a structured approach to verifying the integrity of cash balances, providing a clearer picture of an organization’s financial standing. This process is instrumental in maintaining reliable financial reports and preventing potential discrepancies.

What is a Cash Proof?

A cash proof is a detailed reconciliation process designed to confirm the accuracy of a company’s cash records against its bank statements. Its primary purpose is to identify and explain variances between the cash balance recorded in the company’s internal ledger (the “books”) and the bank’s reported balance. This comparison ensures every cash inflow and outflow is accounted for, providing a comprehensive view of cash movements. Unlike a standard bank reconciliation that focuses on matching ending balances, a cash proof examines all cash receipts and disbursements over a specific period. This detailed approach helps uncover errors and irregularities, and performing a cash proof regularly, often monthly, enhances financial transparency and strengthens internal controls over cash handling.

Key Elements for Reconciliation

Before performing a cash proof, gather several key financial documents. This includes the company’s internal cash ledger, detailing all cash transactions, and the bank statement for the corresponding period. Several items typically cause differences between these records.

Deposits in transit are cash receipts recorded by the company but not yet reflected on the bank statement, such as a deposit made late in the day. Outstanding checks are payments issued by the company that have been recorded in its books but not yet cleared by the bank. Both represent timing differences that require adjustment.

Additionally, bank service charges, interest earned, or non-sufficient funds (NSF) checks may appear on the bank statement but not yet in the company’s books, necessitating their inclusion.

How to Perform a Cash Proof

Performing a cash proof involves systematically adjusting both the bank’s reported balance and the company’s book balance until they agree. This process begins by establishing two sections: “Balance Per Bank Statement” and “Balance Per Books.” The goal is to arrive at an adjusted cash balance that is identical for both perspectives.

On the “Balance Per Bank Statement” side, the bank’s ending cash balance is adjusted for items the bank has not yet processed. This involves adding deposits in transit (funds received by the company but not yet on the bank statement) and subtracting outstanding checks (payments issued by the company but not yet cleared by the bank). Any bank errors are also adjusted here.

For the “Balance Per Books” side, the company’s ending cash balance is adjusted for items discovered from the bank statement. This includes adding interest earned or amounts collected directly by the bank. Deductions are made for bank service charges or non-sufficient funds (NSF) checks received from customers that the bank has returned. Any company errors, such as incorrect recording of a transaction amount, are also corrected here.

After all adjustments, the adjusted bank balance and the adjusted book balance should match, confirming the accuracy of the cash records.

Reconciling Differences

Even after performing a cash proof, discrepancies may persist between the adjusted bank balance and the adjusted book balance. When this occurs, further investigation is required to identify the root cause of the imbalance. Common reasons for remaining differences include mathematical errors (such as incorrect additions or subtractions), unrecorded transactions (where a deposit or withdrawal was missed), or data entry mistakes like transposition errors (e.g., $54 recorded as $45). To resolve these differences, a systematic approach is necessary. This involves carefully re-comparing every entry on the bank statement with the company’s cash ledger, focusing on dates and amounts. Checking calculations and reviewing any previously identified reconciling items for accuracy can help pinpoint the exact discrepancy. Identifying and correcting these remaining differences is important for maintaining accurate financial records and ensuring reliable financial reporting.